Narrow Provider Networks for Employer Plans

The authors conducted in-depth qualitative research to examine questions around provider networks in employer health plans, particularly the development of so-called “narrow networks,” which have grown in the individual market exchanges under the Patient Protection and Affordable Care Act of 2010 (ACA). These narrow networks are characterized by offering considerably fewer health providers than is typical in the group market, and they are formed primarily based on price discounting.

The research includes the review of peer-reviewed journals, news sources, and public policy reports; structured interviews with a convenience sample of human resource benefit directors at 11 large employers; and field research by health-policy experts in a dozen states.

This Issue Brief describes the research in more detail and analyzes the reported facts and viewpoints. The major findings are:

Narrow provider networks are receiving renewed attention, following their increasing prominence in the ACA’s individual (nongroup) marketplace exchanges, which are highly price-competitive.

So far, this renewed interest in narrow networks has not translated strongly to employers. For example, in 2016, only 7 percent of employers with health plans offered a narrow network. Also, in 2014, employers ranked narrow networks the least effective among several strategies to manage health insurance costs.

Reasons employers give for their subdued interest include absence of a track record showing sustained (year-over-year) savings; concern about antagonizing workers; spotty availability of narrow networks, especially in rural areas; greater interest currently in other cost-savings strategies; and reluctance to adopt substantial changes in benefit structures until the future of the ACA’s so-called “Cadillac tax” is resolved.

There are signs that employers’ interest in narrow networks may grow in the near future. More than one-third of employers with health plans that have 5,000 or more workers now offer some type of alternative network, including tiered or “high-performance” networks. Field reports indicate increasing adoption of narrow networks by both large and small employers, particularly in urban markets around the country.

Where narrow networks are offered, their adoption could be increased by giving workers stronger financial incentives to consider them. Offering workers a fixed (“defined”) contribution that does not vary by choice of plan is one way to confer such incentives, and private exchanges are a way to offer workers a broader range of choice. Currently, however, neither defined contributions nor private exchanges are widely used by employers.